В.1. a) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that increase with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of a feasible set optimisation and its marginal revenue and marginal cost. Why is there a deadweight less pss in this case? b) Now assume the firm is a typical firm in a perfectly competitive market. Show the firm's optimal choice alongside the market equilibrium, and briefly explain why there is no deadweight loss in this case. c) Assume an initial equilibrium in which the firm in part b) is making a loss. Explain how the market and a typical surviving firm will adjust in these circumstances so that normal nrofits will be made. You should illustrate your answer diagrammatically.

В.1. a) A profit-maximising firm faces a downward-sloping demand curve for its output and has marginal costs that increase with output. Show, on a single diagram, how its profit maximisation decision can be represented both in terms of a feasible set optimisation and its marginal revenue and marginal cost. Why is there a deadweight less pss in this case? b) Now assume the firm is a typical firm in a perfectly competitive market. Show the firm's optimal choice alongside the market equilibrium, and briefly explain why there is no deadweight loss in this case. c) Assume an initial equilibrium in which the firm in part b) is making a loss. Explain how the market and a typical surviving firm will adjust in these circumstances so that normal nrofits will be made. You should illustrate your answer diagrammatically.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter24: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 13CQ

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